More on the Housing Bubble

Here (from the NYTimes [reg. required] is more compelling evidence than anything else I have seen that there is a huge bubble in at least some housing markets:




















Thanks to Alex Tabarrok at Marginal Revolution for this link.

What the index shows is that real house prices have remained stable over the past 100 years. The contrary impression is driven by inflation and as noted above, changes in what is being measured. Stability, however, is what we should expect. The United States remains a relatively unpopulated country. When house prices in current population centers increase, suburbs and smaller cities expand. People move to less populated areas and in so doing alleviate the press on house prices. In the long run, the supply of housing is very elastic.

The glaring exception to stability is the last 6 or 7 years when house prices have skyrocketed far beyond where they have ever been before. Can you hear the pop coming?

Remember, though, that the apparent bubble has been MUCH larger in some markets than in others. I would guess that the house-price index in that piece is very heavily weighted toward the large metro areas and doesn't consider other areas nearly as much. But if that's where most people want to live and are driving up prices, perhaps it is well-founded.